Mortgage insurance proposal criticised

Mortgage insurance will drive up prices, provide minimal protection to borrowers and do little to improve the supply of houses as it is “the wrong medicine for the job”, a group of industry experts said yesterday.

At a hearing of the Oireachtas finance committee, a number of experts, including Trinity College economist, Ronan Lyons, New Beginnings co-founder, Ross Maguire and Karl Deeter of Irish Mortgage Brokers expressed concerns over the proposed entry of mortgage indemnity guarantees to the market.

Mr Lyons said there should be no question that mortgage insurance would drive house prices and rents higher. “The direct effect of mortgage insurance is going to be to increase prices relative to rents and relative to incomes; I don’t think that’s in debate. If you give more people more credit, the first most important thing to happen is that prices go up relative to rents and relative to incomes.”

He accepted, however, what he sees as the absence of an adequate social housing scheme despite plans unveiled by Environment Minister Alan Kelly on Wednesday, that it may help alleviate the situation.

His comments were broadly in line with the other speakers who also included Brendan Burgess of and Flac senior researcher, Paul Joyce.

With two separate mortgage proposals currently under consideration — the Central Bank’s proposed loan to value (LTV) income limits, as well as the introduction of mortgage insurance — most speakers were in opposition to the latter but in favour of the Central Bank’s proposals.

The exception was Mr Deeter who opposed both measures, saying the 80% LTV proposals would lock people out of home ownership which would deny them a better financial future.

“The Central Bank plan shouldn’t go ahead and the mortgage indemnity plans, they probably shoudn’t go ahead too… the lending that we’re doing now is really responsible and really prudent and you could do things that are already in legislation like increase the stress tests… if you increase that you probably make it safer without any of this.

“The issue of rising house prices and doing this: you couldn’t make a worse correlation between the two —they’re two distinctly different things and this isn’t going to solve any of that…

“We should be focusing on housing people who can’t afford to house themselves and building houses for people who can afford to house themselves and really, if we focused on that and did it well this whole concept would be seen for the misplaced concept that it really is.”

He concluded that no matter what steps are taken he believes we’re going to have another housing crisis.

Mr Maguire, however, said that while banks are currently lending prudently, it would not last and credit restrictions like those proposed by the Central Bank were necessary to guard against another bubble.

Earlier, the committee heard from insurance firms such as Genworth and JLT who claimed that mortgage insurance could reduce rates by up to 2%, reduce the risk to banks lending mortgages and remove the need for first-time buyers to come up with onerous deposits.

The LTV and income limits under consideration by the Central Bank have faced significant opposition from members of government as well as prospective first-time buyers.


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